Specialty chemical company Vantage Specialty Chemicals Inc. has entered into an agreement to be acquired by private equity firm H.I.G. Capital LLC.

Specialty chemical company Vantage Specialty Chemicals Inc. has entered
into an agreement to be acquired by private equity firm H.I.G. Capital
LLC.

The company plans to issue a $540 million first-lien credit facility,
consisting of a $75 million cash flow revolver and a $465 million term
loan, as well as a $170 million second-lien term loan credit facility.
The company will use proceeds to fund the transaction and repay existing
debt.

We are also affirming our 'B-' issue-level rating, with a '3' recovery
rating, on the company's existing first-lien credit facility, and 'CCC'
issue-level rating, with a '6' recovery rating, on the existing
second-lien term loan. We plan to withdraw the ratings on the existing
first- and second-lien debt when they are repaid in full upon close of
this transaction.

The stable outlook reflects our expectation that Vantage will experience
modest EBITDA growth through procurement initiatives and improved product
mix over the next year, and that credit measures will remain appropriate
for the current rating, with weighted-average debt to EBITDA gradually
improving but remaining above 6x.

At the same time, we assigned our 'B-' issue-level rating to Vantage Chemicals
proposed $540 million first-lien credit facility. The recovery rating is '3',
indicating our expectation for meaningful (50%-70%; rounded estimate: 55%)
recovery in the event of payment default. Additionally, we assigned our 'CCC'
issue-level rating to the company's proposed $170 million second-lien term
loan. The recovery rating is '6', indicating our expectation for negligible
(0%-10%; rounded estimate: 0%) recovery in the event of payment default.
We also affirmed the 'B-' issue-level rating, with a '3' recovery rating, on
the existing first-lien credit facility and the 'CCC' rating, with a '6'
recovery rating, on the second-lien term loan. We will withdraw the ratings on
the existing debt once it is fully repaid.

The stable rating outlook on Vantage reflects our expectation for modest
EBITDA growth over the next year through procurement initiatives and improved
product mix. We expect the company's EBITDA and cash flow generation to
improve as the company integrates acquisitions and to improve its product mix
in relatively stable noncyclical end markets. Additionally, we expect modest
improvement based on our overall outlook for modest economic growth in the
U.S. and our expectation that the company's strengths in the domestic market,
its presence in Latin America, and its international distribution network will
contribute to better overall volumes. Our stable outlook assumes that
management and the company's owners will support credit quality and,
therefore, we have not factored into our analysis any distributions to
shareholders or significant debt-funded capital spending or acquisitions.
Despite our expectation for EBITDA growth, we still expect that the company
will maintain leverage credit measures in line with our expectations for the
rating, with weighted-average debt to EBITDA above 6x.
We could lower the ratings over the next 12 months if Vantage's organic
revenue growth stalled or if its margins declined significantly as the result
of not recognizing its procurement and cost-savings initiatives. In addition,
we could lower ratings if liquidity weakened such that sources were below 1.2x
uses, if cash flow turned negative, or if we believed covenant compliance
could become uncertain. We could also lower ratings should the company decide
to pursue a large debt-funded acquisition, increasing leverage to
unsustainable levels with debt to EBITDA greater than 9x.
We could consider an upgrade in the next 12 months if the company's growth
exceeds our expectations coupled with procurement and cost-savings initiatives
exceeding our expectations. In such a scenario, we would expect EBITDA margins
400 basis points (bps) greater than our expectations, resulting in FFO to debt
of greater than 10% and debt to EBITDA approaching 6x on a sustained basis. We
would also need to believe the company's financial sponsors would remain
supportive of maintaining credit metrics at these levels.